Take that! —

Greenlight Capital drops lawsuit over Apple’s preferred stock

Apple CEO Tim Cook described the suit as a "silly sideshow."

Greenlight Capital's David Einhorn dropped his lawsuit against Apple on Friday following the company's decision to withdraw a proposal from its shareholder meeting earlier this week. The proposal would have barred Apple from issuing preferred stock without a vote from shareholders first, but the company decided—with the help of a judge—not to hold a vote on the proposal this past Wednesday after all. As such, Einhorn is no longer suing Apple, according to MarketWatch, and the case has now been closed.

Einhorn filed suit against Apple in early February, accusing the company of hoarding cash instead of returning it to shareholders. As Anders Bylund explained in his look at the case, Einhorn wanted Apple to keep the preferred stock option available for that purpose—although Apple could return cash to shareholders through a variety of methods, Einhorn felt the preferred stock would do more for shareholders. But in a public response to the lawsuit, Apple argued it wasn't trying to block the option for preferred stock with its proxy proposal; the option was still available as long as its shareholders voted on it first.

"Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders," the company said at the time. Several days later, Apple CEO Tim Cook took the stage at the Goldman Sachs Technology Conference, describing Einhorn's lawsuit as "a waste of money for all involved. It’s a silly sideshow."

US District Judge Richard Sullivan sided with Einhorn, saying last week that Apple's proposal "impermissibly bundles 'separate matters' for shareholder consideration." He issued an injunction that blocked the proxy vote that was scheduled to take place this week, forcing Apple to remove the issue from the agenda. And because the proxy vote was no longer on the table, Einhorn apparently elected to drop the case: "Apple removed the bundled proposal from the shareholder meeting, therefore resolving the issue," a Greenlight spokesperson told AllThingsD.

Jacqui Cheng
Jacqui is an Editor at Large at Ars Technica, where she has spent the last eight years writing about Apple culture, gadgets, social networking, privacy, and more. Emailjacqui@arstechnica.com//Twitter@eJacqui

22 Reader Comments

Talk about abuse of the judicial system. He had no sincere intention to actually sue Apple at all. It was merely an attention seeking play that had the added benefit of derailing Proposition 2, which most likely would have passed by a wide margin. Hopefully this is the last we hear of this guy.

US District Judge Richard Sullivan sided with Einhorn, saying last week that Apple's proposal "impermissibly bundles 'separate matters' for shareholder consideration." He issued an injunction that blocked the proxy vote that was scheduled to take place this week, forcing Apple to remove the issue from the agenda. And because the proxy vote was no longer on the table, Einhorn apparently elected to drop the case: "Apple removed the bundled proposal from the shareholder meeting, therefore resolving the issue," a Greenlight spokesperson told AllThingsD.

Jacqui - you make it sound like Apple voluntarily removed the proposal from the agenda.

If the Court ruled for an injunction - then Apple would have to legally remove it from the agneda whether they wanted to or not. They had no choice - it was not voluntary.

It was frivolous and detracting from the actual vote. He dropped the case, hence he did not win. Einhorn makes a lot of comments about stocks he actually own to the general public, I honestly believe at some point he's going to get hammered by the SEC for them.

He filed the case because he wanted the votes to be split.The votes got removed and the judge said that they should be split.

Pretty much sounds exactly like he won. The judge said what he wanted, and Apple were forced to do what he wanted.

What else can he do in order to actually win, other than getting exactly what he wants?

Also, since he doesn't work for the companies, what's the SEC going to hammer him over? Talking about companies and the public information available around them?He doesn't work for the companies, so I think he can say whatever he wants. The company can sue him for libel or defamation if he lies about them/etc, but what's the SEC going to do? Tell a shareholder of a public company he can't talk about public information regarding the public company?

Sometimes shareholders are a pain in the ass. Demands for ever-increasing profits often drive stupid management decisions from tech firms and hurt long-term creative development. But, hey, as they say; you can't live with 'em and you can't live without 'em.

Sometimes shareholders are a pain in the ass. Demands for ever-increasing profits often drive stupid management decisions from tech firms and hurt long-term creative development. But, hey, as they say; you can't live with 'em and you can't live without 'em.

If Apple doesn't want to deal with shareholders, they should not be a public company. The owners of the company should reap some of the reward, not just the CEO - 4 million in 2012, plus a one-time stock grant in 2011 that will see him potentially get 378 million in the future.

Talk about abuse of the judicial system. He had no sincere intention to actually sue Apple at all. It was merely an attention seeking play that had the added benefit of derailing Proposition 2, which most likely would have passed by a wide margin. Hopefully this is the last we hear of this guy.

Are you smoking enormous amount of crack, or just extremely stupid? He sued, won, Apple caved, so he dropped the suit. That's how the legal system is supposed to work.

Talk about abuse of the judicial system. He had no sincere intention to actually sue Apple at all. It was merely an attention seeking play that had the added benefit of derailing Proposition 2, which most likely would have passed by a wide margin. Hopefully this is the last we hear of this guy.

Are you smoking enormous amount of crack, or just extremely stupid? He sued, won, Apple caved, so he dropped the suit. That's how the legal system is supposed to work.

Seriously, Jobs is dead, you can let the RDF go.

He didn't win. He got a temporary injunction so the case could be heard then he chose not to make a case. Now yes, in his mind he accomplished his goal so he can go home happy. However, this is an abuse of what an injunction is for. A further abuse is that Propsal 2 had absolutely nothing to do with this guy's proposal, which requires a shareholder vote in any event due to management opposition. Knocking proposal 2 off the agenda was purely a PR victory and possibly an attempt to intimidate Apple or otherwise gain political capital for future negotiations. Those are not the functions that the judicial system is supposed to serve.

Sometimes shareholders are a pain in the ass. Demands for ever-increasing profits often drive stupid management decisions from tech firms and hurt long-term creative development. But, hey, as they say; you can't live with 'em and you can't live without 'em.

If Apple doesn't want to deal with shareholders, they should not be a public company. The owners of the company should reap some of the reward, not just the CEO - 4 million in 2012, plus a one-time stock grant in 2011 that will see him potentially get 378 million in the future.

Apple shareholders have done Very well.

"Back in 1982, you could have purchased 100 shares of this company's [Apple's] stock for $160. Those same 100 shares would be worth roughly $92,000 dollars at today’s split-adjusted share prices.

Sometimes shareholders are a pain in the ass. Demands for ever-increasing profits often drive stupid management decisions from tech firms and hurt long-term creative development. But, hey, as they say; you can't live with 'em and you can't live without 'em.

If Apple doesn't want to deal with shareholders, they should not be a public company. The owners of the company should reap some of the reward, not just the CEO - 4 million in 2012, plus a one-time stock grant in 2011 that will see him potentially get 378 million in the future.

Apple shareholders have done Very well.

"Back in 1982, you could have purchased 100 shares of this company's [Apple's] stock for $160. Those same 100 shares would be worth roughly $92,000 dollars at today’s split-adjusted share prices.

I am just saying that when a company chooses to go public, they can't just keep hanging on to their profits year after year, at some point they need to pay dividend... that doesn't make the shareholders a PITA... it makes them smart.

He didn't win. He got a temporary injunction so the case could be heard then he chose not to make a case. Now yes, in his mind he accomplished his goal so he can go home happy. However, this is an abuse of what an injunction is for. A further abuse is that Propsal 2 had absolutely nothing to do with this guy's proposal, which requires a shareholder vote in any event due to management opposition. Knocking proposal 2 off the agenda was purely a PR victory and possibly an attempt to intimidate Apple or otherwise gain political capital for future negotiations. Those are not the functions that the judicial system is supposed to serve.

Proposition 2 would have made it harder for the board to issue the preferred stock he wants. The lawsuit was a PR stunt to attract shareholder attention, because after all he was trying to go for a shareholder rejection of Proposition 2, and now he's taken it out of the proxy materials. Apple estimated that it would cost $3 million to change the proxy materials for the meeting.

But there is a very easy way for Apple to have avoided this lawsuit in the first place: complying with the SEC rules and not combining proposals! They should have known better; any company sitting on too much cash is rightfully going to get scrutiny from shareholders and procedural slip-ups like that are just amateur hour.

It's funny how a "silly little sideshow" for a giant company turns in to a major blockbuster for the little guy. Win or no win, this guy made Apple flinch and that will help empower others to challenge Apple. Though it does help to have the fed gov in your corner as well on matters such as this.

Talk about abuse of the judicial system. He had no sincere intention to actually sue Apple at all. It was merely an attention seeking play that had the added benefit of derailing Proposition 2, which most likely would have passed by a wide margin. Hopefully this is the last we hear of this guy.

Are you smoking enormous amount of crack, or just extremely stupid? He sued, won, Apple caved, so he dropped the suit. That's how the legal system is supposed to work.

Seriously, Jobs is dead, you can let the RDF go.

He didn't win. He got a temporary injunction so the case could be heard then he chose not to make a case. Now yes, in his mind he accomplished his goal so he can go home happy. However, this is an abuse of what an injunction is for. A further abuse is that Propsal 2 had absolutely nothing to do with this guy's proposal, which requires a shareholder vote in any event due to management opposition. Knocking proposal 2 off the agenda was purely a PR victory and possibly an attempt to intimidate Apple or otherwise gain political capital for future negotiations. Those are not the functions that the judicial system is supposed to serve.

He won. Read the complaint. He was asking for injunctive relief to stop the vote on Proposal No. 2 under the theory that it violated SEC rules. The judge agreed and issued a preliminary injunction requiring Apple not to proceed with the shareholder meeting with the flawed proposal. Apple dropped the proposal. The only thing left to adjudicate are any "damages" Einhorn may have suffered as a result of the proposal, but such damages are probably non-existent and in any case Einhorn got the relief he wanted. A permanent injunction would not be available because the Proposal no longer exists and such relief is moot.

How is it an abuse of justice to drop a case once you receive the relief you want?

It's funny how a "silly little sideshow" for a giant company turns in to a major blockbuster for the little guy. Win or no win, this guy made Apple flinch and that will help empower others to challenge Apple. Though it does help to have the fed gov in your corner as well on matters such as this.

"hoarding cash instead of returning it to shareholders" - uuhm what? you mean 'distributing cash profits' to shareholders. its just a minor nit but 'returning' sounds more like it was the shareholders to begin with.

Return on investment is likely what the author meant, but still might be 'instead of a providing an investor return' .. any who, its Apple's money. I say let them keep it. Someone's screwing with their stock the past six months and Googels' as well. There's no sense to either movements.

Talk about abuse of the judicial system. He had no sincere intention to actually sue Apple at all. It was merely an attention seeking play that had the added benefit of derailing Proposition 2, which most likely would have passed by a wide margin. Hopefully this is the last we hear of this guy.

Obviiously he sued for a purpose, to do the job the SEC should have done and prevent Apple from illegally bundling different shareholder proposals together to pass an unpopular one with the votes from a popular measure.

And he won.

And if you don't want to hear about Einhorn again, I have bad news for you. He's this generations Warren Buffett, a superstar value investor, with a more activist bent. He's going to just get better known over time as he continues to crush the markets returns.

"hoarding cash instead of returning it to shareholders" - uuhm what? you mean 'distributing cash profits' to shareholders. its just a minor nit but 'returning' sounds more like it was the shareholders to begin with.

Return on investment is likely what the author meant, but still might be 'instead of a providing an investor return' .. any who, its Apple's money. I say let them keep it. Someone's screwing with their stock the past six months and Googels' as well. There's no sense to either movements.

Uh, as soon as profits are earned they belong to the shareholders. Tim Cook and the board are employees. There is no "Apple" that exists apart from it's owners. And it's borderline abusive for the board and Cook to withhold $150B of cash from it's owners, which is far more than Apple will ever need.

And one reason Apple's stock is down is fear over what Apple will do with all that excessive cash. Einhorn came up with plan on how they could return more cash without triggering taxes on repatriating it from overseas. The board and Tim were hellbent on preventing that from happening, which is why they bundled a measure to block preferred share issuance into another measure sure to pass.

Apple shareholders are clearly asking themselves, why does the board & Tim think they need that cash? If they are planning the purchase of AT&T or ABC-Disney, or some other ludicrous massive merger, it will bode extremely poorly for Apple. That's a big reason for fear to hang over the stock.

Apple got where it is through a relentless focus on the customer, not massively expensive huge bets on new technologies or though large mergers. If it shifts course, it likely signals Apples future death knell.